Though Middle East tensions persist, one analyst does not expect the oil sector to feel the brunt of the blow. Vectis Energy Partners Principal Tamar Essner joins Yahoo Finance Live to break down the implications of escalations in regional conflicts and how that would primarily factor into oil supply and demand.

Essner suggests that Iranian supply disruption would be the major factor in oil prices, but believes that even then, U.S. sanctions would be “more bark than bite” as Iran supplies to other markets, including China.

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video Transcript

SEANA SMITH: Tamar, when it comes to your outlook here for crude, the prices that we will likely see, we haven't really seen this massive move higher that many were bracing us for, as we saw following Hamas's attack on Israel. When we talk about the implications of potentially an escalating conflict, which you started to see here play out within the Middle East, what does that mean more specifically for crude in the short term?

TAMAR ESSNER: Well, I think that the market's not good at understanding geopolitical risk, and it will fade that. The reason the market has been so complacent about the recent events in Israel with the war with Hamas, is because there is so much spare capacity. Remember that Saudi has a million barrels a day just in unilateral cuts, in addition to all their OPEC production cuts.

So, basically, in a context where there's a lot of spare capacity, and there's questions about the demand, the market has been fading the geopolitical risk and trending lower, as you indicated. I think that the most near-term risk from a supply perspective is actually if the Biden team starts to more proactively sanction Iranian barrels. But I think that will be more bark than bite, it will actually be very difficult to implement those sanctions at this point, because most of Iran's oil is going to China in non-dollarized trade.

So I think that unless there is an actual hit to oil supplies, even if this conflict escalates, unless it's going to involve Iran directly, even if it escalates just in the form of Iran's proxies, whether Hezbollah, Hamas, the Houthis. And as we've already started to see that it's escalated from those proxies, there's not going to be much reaction in oil, unless Iran is involved directly, or unless we see direct targeting of oil assets.